Income Guidelines

Notes Receivable:
A copy of the note must be presented to establish the amount
and length of payment. The borrower also must provide
evidence that these payments have been received consistently
for the last twelve months, which may include deposit slips,
cancelled checks, or tax returns. If the borrower is not the
original payee on the note, the lender must also establish
that the borrower is now a holder in due course and able to
enforce the note.

Interest and
Dividends: Interest and dividend income may be used,
provided that documentation (tax returns or account
statements) supports a two-year history of receipt. This
income must be averaged over the two years. Any funds derived
from these sources and required for the cash investment must
be subtracted before the projected interest or dividend income
is calculated.

Mortgage Credit
Certificates: If a government entity subsidizes the
mortgage payments, either through direct payments or through
tax rebates, these payments can be considered as acceptable
income if verified in writing. Either type of subsidy may be
added to gross income or may be used to directly offset the
mortgage payment before calculating the qualifying ratios.

Employer Differential
Payments: If the employer subsidizes the mortgage
payments through direct payments, the amount of the payments
is considered gross income; it may not be used to offset the
mortgage payment directly, even if the employer pays the
servicing lender directly.

VA Benefits:
Direct compensation, such as for a service-related disability,
is acceptable, subject to documentation from the VA.
Education benefits, used to offset education expenses, are not
acceptable.

Government Assistance
Programs: Income received from government assistance
programs is acceptable, subject to documentation from the
paying agency, provided the income is expected to continue at
least three years. If the income is not expected to be
received for at least three years, such income may be
considered as a compensating factor. (Unemployment income
must be documented for two years. Reasonable assurance of its
continuance is also required. This requirement may apply to
individuals employed on a seasonal basis, such as farm
workers, resort employees, etc.)

Rental Income:
Rent received for properties owned by the borrower is
acceptable if the lender can document that the rental income
is stable. Examples of stability may include a current lease,
an agreement to lease, or a rental history over the previous
24 months that is free of unexplained gaps greater than three
months. (Student, seasonal, or military renters, or property
rehabilitation would provide such an explanation). A separate
schedule of real estate is not required for rental properties,
provided all properties are shown on the Loan Application.

If the borrower resides in
one or more units of a multiple-unit property and charges rent
to tenants of other units, that rent may be used for
qualifying purposes. However, projected rent of additional
units only and not the owner-occupied unit(s) may be
considered gross income only after deducting the appropriate
vacancy and maintenance factor. They may not be used as a
direct offset to the mortgage payments.

Income from roommates in a
single-family property to be occupied as the borrower's
primary residence is not acceptable. Rental income from
boarders is acceptable if the boarders are related by blood,
marriage, or law. The rental income may be considered
effective income if shown on the borrower's tax returns.
Otherwise, the income only may be considered a compensating
factor and must be documented adequately by the lender.

The following is required to
verify all rental income:

1. Schedule E of IRS
Form 1040. Depreciation may be added back to the net income
or loss shown on Schedule E. Positive rental income is
considered gross income for qualifying purposes; negative
rental income must be treated as a recurring liability. The
lender must be certain that the borrower still owns each
property listed, by comparing the Schedule E with the real
estate owned section of the residential loan application. (If
the borrower in the same general area owns six or more units,
a map disclosing the locations must be submitted evidencing
compliance with FHA's seven-unit limitation. See paragraph
4-8 for additional information.)

2. Current Leases. If
a property was acquired since the last income tax filing and
is not shown on Schedule E, a current signed lease or other
rental agreement must be provided. The gross rental amount
must be reduced for vacancies and maintenance by 25 percent
(or the percentage developed by the jurisdictional HOC),
before subtracting PITI and any homeowners' association dues,
etc., and applying the remainder to income (or recurring
debts, if negative).

Principal Residence
Being Vacated and Rented: Effective September 19, 2008
an underwriter may NOT consider any rental
income from the primary residence being vacated and rented
except under the circumstances listed below.

Exceptions: Rental income on the primary
residence being vacated reduced by the appropriate vacancy
factor may be considered under the following circumstances:

Relocations: The
homebuyer is relocating with a new employer, or being
transferred by the current employer to an area not within
reasonable and locally recognized commuting distance.
A properly executed lease agreement of at least one year's
duration after the loan is closed is required. It is
also recommended that proof of the security deposit and/or
first months rent was paid to the homeowner.

Sufficient Equity in
Vacated Property: The homebuyer has a loan to
value ratio of 75% or less as determined by either a current
appraisal of by comparing the unpaid principal balance to
the original sales price of the property.

Automobile Allowances
and Expense Account Payments: Only the amount by
which the borrower's automobile allowance or expense account
payments exceed actual expenditures may be considered income.
The borrower must provide IRS Form 2106, Employee Business
Expenses, for the previous two years to establish the amount
of income that may be added to gross income. The borrower
also must provide verification from the employer that these
payments will continue. (If these calculations show a loss,
that amount must be treated as a recurring debt. If the
borrower uses the standard per-mile rate in calculating
automobile expenses, as opposed to the actual cost method, the
portion that the IRS considers depreciation may be added back
to income.) Additionally, the borrower's monthly car payment
must be treated as a recurring debt; it may not be offset by
the car allowance.

Trust Income:
Income from trusts may be used if guaranteed, constant
payments will continue for at least the first three years of
the mortgage term. Documentation is required and includes a
copy of the Trust Agreement, or other trustee's statement,
confirming amount, frequency of distribution, and duration of
payments. Funds from the trust account also may be used for
the required cash investment with adequate documentation.

Non-Taxable Income:
If a particular source of regular income is not subject to
federal taxes (e.g., certain types of disability and public
assistance payments, military allowances), the amount of
continuing tax savings attributable to the non-taxable income
source may be added to the borrower's gross income. The
percentage of income that may be added may not exceed the
appropriate tax rate for that income amount, and no additional
allowances for dependents are acceptable. The lender must
document and support the adjustments (the amount the income is
"grossed up") made for any non-taxable income source. Child
support income cannot be grossed up. The lender should use
the tax rate used to calculate last year's income tax for the
borrower. If the borrower is not required to file a federal
income tax return, the tax rate to use is 25 percent.